Why is the marginal revenue of a monopolist charging a uniform price lower than the price level?

Question

BlackTom AI · Accepted Answer

To understand why the marginal revenue of a monopolist charging a uniform price is below the price level, we need to consider how revenue changes when output changes.
Option 1: 'Because increasing quantity increases revenue, but it comes at the expense of having to charge a lower price to all units sold.' This captures the core idea: with a downward-sloping demand, to sell one more unit the monopolist must lower the price on every unit sold, not just the last unit. As a result, the gain from selling an extra unit (the revenue from that unit) is offset by the revenue lost on all previously sold units due to the price reduction, making MR less than the posted price. This is the standard derivation from total and marginal revenue under a downward-sloping demand curve.
Option 2: 'Because the monopolist sells each unit at a different price, so marginal revenue reflects only the price of the last unit sold.' This is inaccurate for a monopolist charging a uniform price. If the price is uniform, all units sold receive the same price; there is not a separate price for each unit, so MR is not simply the last unit’s price. The error here lies in conflating uniform pricing with a per-unit varying price schedule.
Option 3: 'Because marginal cost is always higher than marginal revenue for a monopolist, which forces marginal revenue to fall below the price.' This mixes up the concept of MR with MC. MR can be below or above MC depending on the quantity chosen; the key reason MR is below the price in this context is the price reduction across all units when quantity increases, not a general statement about MC versus MR.
Option 4: 'Because the monopolist cannot decrease quantity sold without decreasing the price.' In fact, a monopolist facing downward-sloping demand can alter quantity by changing price, but the crucial point is that changing output changes price for all units due to the uniform price rule. The statement misstates the mechanism and is not the fundamental reason MR lies below the price.

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Why is the marginal revenue of a monopolist charging a uniform price lower than the price level?

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